Market report – 24 October 2016


A relatively quiet week ahead with only a sprinkling of top tier data. Central bankers Mark Carney and Mario Draghi will be speaking on Tuesday, with any notable comments regarding their respective monetary policies likely to create further volatility. Preliminary UK GDP figures (QoQ and YoY Q3) Thursday are forecast to show a contraction in the economy, potentially sparking further Sterling weakness. Durable goods orders on Wednesday and annualized GDP figures on Friday, both from the US, brings the data releases to a close for the week.

Sterling made gains against both the Euro and Dollar last week. One slip of the tongue regarding Brexit negotiations and this can all be unravelled. However, should the recent calm persist then Sterling could carry some momentum through next week. The short to medium term outlook is less positive, with bets against the Pound at their highest levels since 2013.
Theresa May last week told European leaders that she will push for free trade in goods and services at upcoming Brexit negotiations. Further, she also stated she would seek to ensure Britain attains full sovereignty over its borders.
Retail Sales figures released on Thursday showed consumers were still spending, although somewhat behind analyst’s expectations, with figures coming in at a slightly disappointing 4% versus forecasts of 4.5%.

No change in interest rates from the European Central Bank last Thursday. Mario Draghi said quantitative easing is unlikely to come to an ‘’abrupt’’ end, with most market participants now confident that monetary stimulus will be extended past March. Thursday afternoon was spent by Draghi trying to give away as little information as possible about one of the most important questions in global monetary policy – the ECB’s plan to end, sustain or extend its bond buying program.
Three weeks running the Euro has now posted losses, with this month’s slide already at 3%. Not quite in the same league as Sterling’s performance post Brexit, but still of concern for Euro sellers nevertheless.

The Dollar rose to its highest level since February against a basket of currencies on Friday. Strong top tier data next week from the world’s largest economy will lend support to a potential interest rate hike at Decembers FOMC meeting. Markets are pricing in a 74% chance of a 25 basis point hike.
John Williams of the San Fancisco Federal Reserve bank reiterated on Friday that ‘’this year would be good’’ for a rate rise. Delaying a rate hike could end up fuelling inflation and force the Fed to implement sharp rate increases that could choke economic growth.
Credit Suisse analysts, among others, are forecasting GBP/USD interbank rates to fall as low as 1.16 within the next 3 months.

Yuan payments leaving China jumped to a record high last month, highlighting the pressure that the currency is under, having fallen to a six year low in both on and off shore markets.
China’s outbound Yuan payments surged to a record in September, indicating greater pressures on a currency that has weakened to a six-year low in both onshore and overseas markets.

Last week saw 12 banks, including Barclays, complete an initiative during which they tested cryptocurrencies. A series of trials using blockchain technology were carried out, in which the banks were shown how this technology could save money and create new revenue streams.